Despite the negative stigma attached to securities lending on the low and most superannuation funds lending, individual portfolio managers are still on the cautious side, BNP Paribas Securities Services believes.
The global custodian said securities lending got roped into the same category as short selling during the global financial crisis and led to a lot of withdrawal.
BNP Paribas Securities Services head of ALMT, FX and agency lending for Asia Pacific, Natalie Floate, said “there was a lot of time spent throughout 2009 and 2010 educating on the differences between short selling and securities lending and then educating on what securities lending actually is”.
“My personal belief is that the stigma has decreased at the right level, at board level and some of the trustee board levels. But where we still find issue is when we have one-to-one with some portfolio managers, but it’s usually because they have a personal experience or story. 2008 wasn’t that long ago,” she said.
“Securities lending historically is a way to generate incremental revenue form assets that would otherwise be sitting dormant in custody accounts for long-term asset holders. So people who are buying assets to hold for the long-term to meet liabilities, pension payments, etc.
“We get our monthly statements and know we have international equities, fixed income, and so on. Those assets, once they’re bought are sitting in portfolios somewhere. So what securities lending does is introduces a way to lend out the securities on a short-term basis and generate extra revenue that then comes back to the fund. But you obtain all the economic rights of ownership.”
BNP Paribas Securities Services global head of agency lending, said the linkage with short-selling in the US was over.
“It will be interesting to see the change with portfolio managers totally getting it with understanding the liquidity argument,” he said.
“And then having another conversation which is about ‘if I’m investing on behalf of the members of the fund, and this is something in a risk profile I can absorb and understand and do, do I therefore have a responsibility to enter into it?’ That’s a very different conversation from 10 years ago.”
